For first-time home buyers, securing a home loan can be a difficult process. If you are a first-time home-buyer, It is helpful to become more informed on the different types of home loans and which is the most preferable option for you to make the process easier. Finding the right loan program for you can save you money, both at closing and long-term through reduced monthly payments. What follows is an overview of the four most notable types of home loans that first-time home-buyers should consider so that you have the knowledge you need to navigate the loan process.
Top Loans For A First-Time Home Buyer
There are four main types of loans that first time home buyers should consider: FHA, VA, conventional, and USDA loans. Each type of loan offers unique benefits and potential drawbacks, depending on each situation. Additionally, some may qualify for a certain type of loan but not another, and understanding what you qualify for is important.
An FHA loan is a guaranteed loan by the Federal Housing Administration (FHA). This means the lender is reimbursed by the FHA if the borrower defaults on the loan. Notably, FHA loans are often the most generous type of loan for first-time home-buyers. You do not need a high credit score to qualify for the loan program, and it offers competitive interest rates compared to other programs.
Those who are interested in securing an FHA loan will need a minimum credit score of 580 if they are interested in making the minimum down payment of 3.5 percent. With that said, borrowers can receive an FHA loan with as little as a 500 credit score if they are able to make a 10 percent or higher down payment. Borrowers who choose an FHA loan are obligated to have mortgage insurance.
The VA loan program is designed for military members, veterans, and their spouses. This means only those who serve or have previously served in the military qualify, along with all who are married to someone in the military. There are very few downsides to the VA loan program, although it may be more difficult to find a lender that is approved to issue VA loans.
A VA loan may offer the most benefits of all the loans listed here. Those who qualify for a VA loan are not required to make a down payment and can enjoy low-interest rates. Those who qualify are also not obligated to purchase mortgage insurance, and typically have lower closing costs. The credit score requirements are also fairly low for a VA loan, with an average required minimum of 620.
A conventional loan requires a higher minimum credit score, but it offers unique benefits that are great for first-time home-buyers. If you have a credit score of 620 or higher, you should strongly consider a conventional loan.
Conventional loans typically only require a 3 percent down payment. This means a home that is purchased for $300,000 using a conventional loan will only require a down payment of $10,000. There is also no initial insurance fee, which can save the home buyer money at closing. Mortgage insurance is required if less than a 20 percent down payment is made, although it is cancelable.
Of course, the notable drawback to a conventional loan is that not all first-time home-buyers will qualify. It does require a higher credit score, so those who have less than a 620 credit score may be best-suited for an FHA loan if a VA or USDA loan is not an option.
A USDA loan is a home loan provided by the U.S. Department of Agricultural. The purpose of the USDA loan program is to encourage more home buyers to purchase in more rural parts of the country. Subsequently, USDA loans are not available for homes that are in more urban areas. You can find out more information about eligibility requirements for a USDA loan on the U.S. Department of Agricultural website.
However, if you are willing to purchase in a rural area, a USDA loan offers intriguing benefits. Most notably, many USDA loans do not require a down payment. They often offer low-interest rates as well, along with relatively inexpensive mortgage insurance. It is a great option for first-time home-buyers with a lower income who have a good credit score.
Speak With MyLendingPal Today
Reach out to our team today at MyLendingPal to learn more about the different types of loan programs for first-time home-buyers. If you are a first-time home buyer we can help you secure the best loan possible and ensure you have all of your questions answered along the way. We can also help you out with other types of loans. Speak to our expert team today to see how we can help you secure the loan you need.